European Stock Markets Climb on Greek Debt Deal Optimism—I Beg to Differ

02/13/2015 5:17 pm EST


Jim Jubak

Founder and Editor,

Even though European stock markets appeared to side with the optimists of the Greek debt disagreement on Friday, MoneyShow's Jim Jubak highlights why—after looking at the fine print—he's siding with the pessimists instead.

The Greek government says "serious progress" was made this week toward a deal. Dutch finance minister and Euro Group president Jeroen Dijsselbloem says he's "very pessimistic" about reaching a final agreement on Greek debt.

In this disagreement, European stock markets today decided to go with the optimists. The German DAX closed ahead 0.4%, the French CAC did slightly better with a 0.7% gain, Spain's IBEX 35 climbed by 1.68%, and stocks in Athens rose a big 5.61%.

Looking at the fine print in yesterday's decision by the European Central Bank to extend an additional 5 billion euros in loans to Greek banks, however, I'd have to side with the pessimists.

The bank added 5 billion euros to the 60 billion euros already available to Greek banks under the Emergency Liquidity Assistance program. There are two key points to note here. First, this is an extremely meager carrot; Greece faces 4.1 billion euros of debt repayments in the next six weeks, and with tax collections running 20.3% below target, the Greek government said yesterday that the central bank has barely covered the likely short-term gap. ("Covered" is itself a questionable term in this context since the European Central Bank has made 5 billion euros available to Greek banks through the Greek central bank and not to the Greek government itself.) Second, the Emergency Liquidity Assistance program is a very short-term funding source. The European Central Bank reviews this authority every two weeks so Greece certainly can't count on this money if talks go astray.

I'd read the European Central Bank liquidity offer as an effort to give the two sides a bit more time to talk, but that doesn't expose the central bank greatly if the talks go nowhere. At the same time, the structure of the offer keeps pressure on Greece and its banks. Money continues to leave the Greek banking system at a rate of 200 million to 300 million euros a day. That pressure would seem to be needed if press reports that Greek Prime Minister Alexis Tsipras-at the last minute-scuppered what many participants in this week's meetings had thought was an agreed text summarizing the results of the talks.

That rate of outflow would increase if Monday's meeting of EuroZone finance ministers ends badly.

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